Fund Performance review
The Henderson Global Growth Fund slightly under-performed its benchmark, the MSCI All Country World Index, returning 1.1% versus 2.0% respectively over the quarter.
From a sector perspective, the fund’s information technology holdings were the largest contributors to returns while the financials exposure was also a positive.
The most significant contributor to returns was Icon, an Irish-listed company which is one of the largest listed contract research organisations (CROs) companies. CROs help pharmaceutical and biotech clients launch new drugs by managing the clinical trial process on their behalf. The complexity of running clinical trials has increased markedly in the last 20 years, with regulators requiring more data and longer treatment periods to prove the safety and efficacy of drugs. The resulting increase in costs has encouraged the outsourcing of more of this work to specialised CROs, but with the addressable market less than 50% penetrated, and with the top five firms only accounting for 40% of that, this is a long-term trend we expect to see continue for many years to come. Icon sets itself apart within the industry by having an exceptional track record of operational performance, an innovative approach to adopting new technologies, and a balance sheet that provides significant financial flexibility.
German auto-components and tyre company Continental was a significant contributor to positive performance. The automotive industry is going through a period of significant change with the moves toward greater energy efficiency, greater safety and increased digitisation of in-car ‘infotainment’ offerings all offering long-term growth opportunities. Continental AG is disproportionately exposed to these trends and the company's ability to outgrow the overall auto end market stems from a mix of businesses which are heavily biased to these higher growth elements. Around 40% of its chassis and safety business is designed around the more technologically advanced Electronic Stability Program (ESP) areas, around 65% of its Power Train business is CO2 reducing fuel injection and turbo charge systems, and a large percentage of its interior segment is in areas such as telematics. Additional growth should come from share gains as the stronger players take share from the smaller, driven by global product sourcing and standardisation by original equipment manufacturers (OEMs). Our attraction to the strength of the company’s products, brands and growth opportunity is enhanced by what we believe to be a very compelling valuation of the stock.
Cognex, the world’s leading supplier of machine vision systems, also performed well over the period. As the company’s technology gains further traction in the automotive, consumer electronics and logistics markets, it is posting impressive rates of growth while also demonstrating strong operating leverage and margin expansion. After a strong move upwards in its share price we began to feel that the valuation ascribed to the stock was leaving less room for upside and so reduced the size of the position in the fund. While it still remains a meaningful investment, the holding size is now more modest.
|Discrete year performance
||Henderson Global Growth Fund (%)
||MSCI AC World Index (%)
|1 year to 30/09/2017
|1 year to 30/09/2016
|1 year to 30/09/2015
|1 year to 30/09/2014
|1 year to 30/09/2013
* Source: Morningstar, at 30 September 2017, nav-nav, net income reinvested, net of fees, Class A Acc shares, in Sterling. Past performance is not a guide to future performance. Prices can go up and down and you may not get back the amount originally invested. NAV = net asset value.
Fund activity review
Portfolio activity over the quarter included establishing a new holding in Whitbread, the owner of both Premier Inn hotels and Costa coffee. Both businesses have leading shares in their respective markets, generate good returns on capital and have favourable long-term prospects in our view. Moreover, Whitbread’s valuation looks appealing particularly considering its substantial freehold property assets, the value of which we believe are not properly reflected in Whitbread’s share price.
We also took a position in Union Pacific, the freight hauling railroad system operating across central and western United States. With the move towards greater energy efficiency globally, we believe that that the logistics and haulage industries will put greater emphasis on rail as a mode of transport, to the detriment of road-based heavy goods vehicles and aeroplanes. The company has a strong competitive position with significant barriers to entry as the largest railroad system in the continental US, and, in light of its long-term prospects we think the valuation looks attractive on a five-year view.
We sold our holding in China Mengniu Dairy due to concerns in relation to shareholder alignment. Mengniu had previously announced the acquisition of a majority stake in China Modern Dairy, a lower quality business than its own, although operational synergies were articulated as a key reason by senior management at the time. However, upon further investigation we discovered that Mengniu had effectively bailed out China Modern Dairy from a large potential liability that related to a previous acquisition that China Modern Dairy had made. Given the clear misalignment of shareholder interests in this instance we decided to sell.
Fund manager's outlook
The fund’s strategy is to avoid making major macroeconomic calls, and to instead focus bottom-up on finding companies with underappreciated growth and high barriers to entry at attractive valuations. Through purchasing undervalued securities that are exposed to strong secular tailwinds of growth, we aim to generate significant absolute and relative returns over the longer term.
Janus Henderson Investors
201 Bishopsgate, London EC2M 3AE
Tel: 020 7818 1818 Fax: 020 7818 1819
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Past performance is not a guide to future performance.The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.
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Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. [Telephone calls may be recorded and monitored.]
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